There’s no denying that inflationary pressures have intensified, owing to rising commodity prices. With prices mounting across all sectors, it’s becoming increasingly difficult to fulfill the most basic of needs – partially due to expensive housing/real estate market. Commodity markets take residual effects from other aspects of the economy- oil prices, real estate prices, retailer margins, etc.
In commodities, the bulk of the value and therefore prices are captured “downstream”, i.e. supply chains closer to the consumer (importers to retailers). Upstream, i.e. supply chains from production to exports remain largely normalized due to having many suppliers in the market. During COVID-19, both upstream and downstream supply chains were disrupted. We continue to see the impact of this disruption post-COVID.
Whilst, on the surface, this does seem like a massive global problem, an even bigger issue is what’s churning beneath the surface. Production and manufacturing industries have been hit the hardest – due to the disruption caused in the global supply, which resulted in a hike in both labor and freight costs.
The pandemic, which began in the spring of 2020 has further multiplied the effects of inflation that has made it increasingly challenging for manufacturers and millers to acquire raw materials, right from the grain of rice to packaging material, whilst experiencing a 3-fold hike in price.
Secondly, the costs of recruiting and retaining the labor force have also become expensive, partially due to social distancing which affected the production and milling process. Another point to note is that all companies, globally, specifically in the manufacturing industry, have also witnessed a shortage in labor supply, thus leading to decreased production and increase in prices.
In our specific industry (rice), basmati is a hand-harvested crop, for which an active labor force is paramount. But during the pandemic, all our workers had to rush back to their villages and towns to be with their families, which adversely affected basmati production, leading to not being able to cater to global demands.
Thirdly, one of the major contributing factors to inflation has been an enormous increase in freight charges, particularly ocean freight – which increased by more than 1000%. In general, we are also experiencing other higher logistics costs, such as warehousing, storage, and transportation. This has added to the costs of acquiring raw materials and transporting goods from point A to point B.
Last but not the least, industry players also had to tackle many macroeconomic factors that came into play during the Initial wave of the outbreak. The disparity between demand and supply was a major cause of concern as the increased demand for commodity goods caused by panic-buying clogged the supply chain, leaving many shelves empty, which resulted in further exacerbating prices. This was also partially due to an increase in overall consumption of food & beverages as consumers were at home due to the COVID19 measures put in place by government authorities.
Working closely with people on the ground is an effective way to curb the effects of rising inflation. Our contract farming program at KRBL Ltd. involves working with farmers at the field level and assisting them every step of the way, from distributing high-quality seeds to transferring optimum sowing and transplanting techniques, to assisting in sourcing good quality (raw materials) inputs.
Through the contract farming initiative, KRBL Ltd. works with 95,000 farmers, across the country (India) to procure more than 0.64 million metric tons of rice each year. The meticulous process of contract farming involves hand-holding the farmer every step of the way to produce the highest quality product for end consumers.
Building and maintaining good relations with suppliers & distributors too is key. Fostering strong bonds with those that ultimately deliver your product to the end consumer is greatly important. Adaptability in line with consumer demands and needs, delivering what is required in adequate quantities, especially during harsh economic conditions, is what defines the legacy of a business.
